Air Force to reopen $35 billion tanker contract

The Pentagon will reopen the competition for a $35 billion aerial refueling tanker contract, Defense Secretary Robert Gates announced Wednesday. The announcement came three weeks after congressional auditors found the Air Force made "significant errors" in awarding the contract to Northrop Grumman and the European Aeronautic Defense and Space Co. (EADS) over Boeing.

WASHINGTON — Three weeks after a stinging rebuke from congressional auditors, the Pentagon announced Wednesday that it will reopen bidding for a $35 billion contract to start replacing the Air Force's aging fleet of aerial refueling tankers.

Secretary of Defense Robert Gates said the Defense Department would solicit new bids from both Boeing, which complained bitterly after it lost the original competition, and a team composed of Northrop Grumman and the European Aeronautic Defense and Space Co., which won the original contract.

In a slap at the Air Force, Gates said his office, rather than the Air Force, will handle the new competition.

"Industry, the Congress and the American people all must have confidence in the integrity of the acquisition process," Gates said. "I believe the revised process will result in the best tanker for the Air Force at the best prices for the American taxpayer."

The Air Force's original selection of the Northrop-EADS team angered Boeing and its supporters in Congress when the decision was announced in February. Boeing officials protested the award two weeks later.

The complaints that Air Force officials had changed specifications and made other decisions that were intended to undercut Boeing's chance of winning the job gained credibility with a report from the Government Accountability Office last month.

That report concluded that the Air Force made a number of "prejudicial errors," including mistakes in calculating the so-called life cycle costs of the two planes and uncertainty over whether the winning plane could refuel all of the Air Force's aircraft. The auditors also found that the Air Force held "misleading and unreasonable" discussions with Boeing.

"The Air Force did not fulfill (its) fundamental obligation" to ensure a fair evaluation of Boeing's bid, the report concluded, urging that bids be reopened.

While most on Capitol Hill applauded the decision, others were wary that the new competition still would favor Northrop-EADS. Gates said the competition would be completed by the end of the year and that there would be only "minimal" changes in the bidding process to respond to the GAO complaints.

"Very wary," said Sen. Patty Murray, D-Wash. "I have followed the bouncing ball now for eight years and the ball is still bouncing. I am going to stay in the Pentagon's face."

Both Murray and Rep. Norm Dicks, D-Wash., said they were concerned that the Air Force was continuing to favor the larger Northrop-EADS tanker even though it had originally sought a medium-sized tanker. Dicks said the smaller Boeing tankers would save $35 billion in fuel cost over the lifetime of the planes.

Boeing is based in Washington state.

"This is another spin operation by the Pentagon and the Air Force," said Dicks, who spent the afternoon on the phone with Defense Department officials. "I am very upset. This is another effort to tilt the competition to Northrop-EADS. We will fight this thing and we will have to use a legislative remedy."

Boeing said it welcomed the decision to reopen the competition, but that it, too, was reserving judgment.

Northrop said it was convinced it would win the new competition.

The contract could ultimately be worth more than $100 billion as the Air Force replaces its fleet of 600 or so Eisenhower-era tankers. The initial contract will be for 179 planes.

The Boeing tanker would use a 767 airframe built at its plant in Everett, Wash., and converted into a military tanker at a Wichita, Kan., facility. About 9,000 jobs in Washington state and 1,000 or so in Wichita are at stake.

The Northrop-EADS tanker would use an Airbus A-330 airframe. The A-330s are currently assembled in Toulouse, France, using French, German, English and Spanish parts. Northrop-EADS eventually plans to assemble the tankers at a new plant in Mobile, Ala., but groundbreaking for the facility has been postponed.

Gates and others emphasized that while Boeing raised more than 100 issues in its protest, the GAO only identified eight that the Air Force had mishandled. They included the competing tankers "lifecycle costs," questions about whether the Northrop-EADS tanker could refuel all the Air Force's planes and allegations that the Air Force may have misled Boeing on certain aspects of the contract requirements.

"We will address all of these in the new solicitation," Gates said.

John Young, the department's undersecretary for acquisitions, will head up the new tanker competition even though he was involved in the earlier competition.

Some lawmakers said they were concerned that the Pentagon still won't address such issues as whether Airbus is subsidized by European governments for the A-330, the national security implications of awarding the contract to a team that includes a major European aerospace manufacturer, and the possible loss of U.S. jobs.

"As the Defense Department moves forward with re-bidding the tanker contract, I urge them to consider the broader implications of their choice," said Rep. Rick Larsen. D-Wash., whose district includes Boeing's Everett plant.

Kansas lawmakers said they were relieved that the Pentagon recognized the earlier Air Force mistakes.

"There have been critical errors in the procurement of this tanker, and we will work to ensure that this does not happen again," said U.S. Sen. Pat Roberts, R-Kan.

Alabama lawmakers dismissed the GAO criticisms as "minor procedural flaws" and said the Pentagon plan was proper.

"It is vitally important that members of Congress support this expeditious path forward," said Sen. Richard Shelby, R-Ala.